GST » GST on Used Vehicle Sales for Used Vehicles Traders in Singapore

A dealer’s guide to choosing between the Gross Margin Scheme and the Discounted Sales Price Scheme.

The problem every used car dealer runs into

A GST-registered motor dealer selling a used car has a choice to make on every single unit: how to charge GST on the sale. For an ordinary second-hand vehicle sold to a customer, Singapore gives dealers exactly two routes, the Gross Margin Scheme (GMS) and the Discounted Sale Price Scheme (DSPS). There is no third option of simply charging the standard rate on the full price instead, that route is reserved for new vehicles, vehicle bodies, vehicle parts, and a few other specific situations covered later in this article. Picking the wrong route for a used vehicle is not a paperwork slip. Under-charged GST gets recovered by IRAS, and improper use of GMS carries penalties on top of the recovered tax.

This article sets out how the two schemes work, when each one applies, and the documentation a dealer must hold to defend the choice.

The starting point: Where does the vehicle come from?

The scheme a dealer may use for a resale is decided at the point of purchase, not at the point of sale. Before quoting a customer, check how the vehicle was acquired.

Scheme 1: Gross Margin Scheme (GMS)

How does the Gross Margin Scheme works ?

Under GMS, output tax is charged only on the margin, the difference between the selling price and the purchase price, not on the full sale value. The selling price is treated as GST-inclusive. GST is computed as 9/109 of the gross margin.

Worked example on the use of GMS

Selling price: S$25,000

Purchase price: S$20,000

Gross margin: S$25,000 – S$20,000 = S$5,000

GST payable to IRAS: S$5,000 x 9/109 = S$412.84

Value of standard-rated supply to be reported: S25,000.00 – $412.84 = S$24,587.16

If the vehicle is sold at a loss or at the same price it was bought for, no GST is payable. The full selling price must still be reported as a standard-rated supply in the GST return.

The conditions that must be met under Gross Margin Scheme

GMS can only be used by a second-hand motor trader if the vehicle was purchased from one of the following:

• A non-GST-registered individual or business, or
• A GST-registered supplier who used GMS on the sale to you, evidenced by a sales invoice and not a tax invoice, from that supplier showing the vehicle was supplied under GMS.

The supplier’s invoice must not show any GST amount and must carry the prescribed statement on the sales invoice that neither party can claim input tax on the vehicle. A general purchase agreement, sale and purchase contract, or informal receipt does not satisfy this requirement, even if the supplier is GST-registered and the agreement is properly signed. Without the correct sales invoice issued by the supplier, GMS is not available for the resale.

What the dealer gives up under GMS?

No input tax can be claimed on the purchase, and the buyer cannot claim any input tax on the resale, regardless of the buyer’s own GST status. The dealer must issue a normal sales invoice and not a tax invoice, and must not itemise a GST amount on it.

Scheme 2: Discounted Sale Price Scheme (DSPS)

How does the Discounted Sales Price Scheme works ?

Under the DSPS, GST is charged on 50% of the selling price, regardless of whether the vehicle is sold at a profit or a loss. No prior approval is required to use DSPS.

Worked example on the use of DSPS:

Selling a vehicle under DSPS where the sales price excludes GST

You sold a motor vehicle at $25,000 (excluding GST) on 5 Jan 2024.

GST chargeable = $25,000 x 50% x 9% = $1,125

For GST reporting purposes

Value of standard-rated supply: $25,000

Output tax due: $1,125

Selling a vehicle under DSPS where the sales price includes GST

You sold a motor vehicle at $52,250 (including GST) on 5 Jan 2024.

GST chargeable = $52,250 x 9/209 = $2,250

For GST reporting purposes

Value of standard-rated supply: $50,000 (i.e. $52,250 – $2,250)

Output tax due: $2,250

The conditions that must be met under Discounted Sales Price Scheme

A dealer should use DSPS when either of the following is true:

• The vehicle does not meet the GMS purchase conditions above, or
• The customer is GST-registered and buying a commercial vehicle, so the dealer wants to let the customer claim part of the GST as input tax.

A tax invoice must be issued by the used car dealer when the customer is GST-registered, so the customer can claim input tax on the GST charged if the vehicle qualifies and the usual input tax conditions are met. Under DSPS, the customer’s claim is capped at the GST shown on that 50% base, it can never reach the full GST that a standard-rated sale would generate.

Scheme 3: Standard rate, 9% on the full selling price

The standard rate of 9% on the full selling price is not a third option for reselling an intact second-hand vehicle. It applies in these specific situations instead:

1. New vehicle sales, where GST is charged on the selling price after deducting regulatory charges such as COE, ARF, registration fee and road tax;
2. Sale of a vehicle body after deregistration, when the GMS purchase conditions are not met;
3. Sale of dismantled vehicle parts, where GMS can never apply, regardless of how the vehicle was bought;
4. Sale of a repossessed vehicle on behalf of a GST-registered hirer, under Regulation 58 of the GST General Regulations.

None of these describe an ordinary used-car resale to a customer. For that transaction, the choice is GMS or DSPS, and DSPS applies automatically once GMS is ruled out.

Comparing GMS and DSPS on the same vehicle

Using the example of a used vehicles where the Purchase price is SGD 30,000 and the selling price is SGD 40,000, the comparison of output GST between the GMS and DSPS is given below:

Documentation: the difference between a clean file and a penalty

Since 1 July 2025, IRAS no longer pre-approves GMS use. A dealer self-assesses eligibility using IRAS’s Self-Review of Eligibility to Use the Gross Margin Scheme checklist. That change removed a checkpoint, it did not remove the requirement. The burden of proof sits with the dealer if IRAS reviews the file later.

For every second-hand vehicle sold, a dealer’s stock book and invoices should show:

• Purchase invoice number, seller’s name, and the vehicle’s registration, engine and chassis numbers
• Purchase price and GST incurred, if any
• Which method was used to dispose of the vehicle, GMS or DSPS
• Selling price, GST charged, and the margin, where applicable

A GMS sales invoice must show the seller’s name, address and GST registration number, the buyer’s details, the vehicle particulars, the total price, and the statement that neither party can claim input tax. It must never show a GST amount. A DSPS or standard-rated sale must be issued as a tax invoice showing the GST rate and amount separately.

Improper use of GMS, including relying on a purchase agreement instead of a compliant sales invoice, exposes the dealer to recovery of the under-declared output tax and to penalties. Records must be kept for at least five years.

Conclusion

For an ordinary second-hand vehicle, the scheme is decided by the paper trail, not by preference, and the choice is only ever between two schemes for a used car dealer.

1. Check the purchase invoice before quoting a customer in order to confirm which scheme, if any, the vendor applied, and only use GMS when the required sales invoice is in hand.
2. Where GMS is not available, DSPS applies, whether the customer of the used vehicle is a private individual or a GST-registered business.
3. A dealer cannot elect the full standard rate instead on that resale to give a GST-registered buyer a bigger input tax claim, the standard rate can only be used on new vehicles sales, sales of vehicle bodies, sales of vehicle parts, and repossession sales, not to an intact used vehicle changing hands.

We hope this is helpful. If you need help in the review of GST on a periodic basis, please contact us by filling up the form below and we will get back to you as soon as possible.